Shell Convent Refinery

Positioned along the Mississippi River, the Shell Convent Refinery is located in Convent, Louisiana, and has access to the US Gulf Coast and international waters. The Refinery produces 211,000 barrels per day and is just upriver from the St. James storage and distribution hub which offers a high degree of flexibility for both foreign and domestic oil supplies via pipeline.

PSP Industries was retained by the project engineer in August 2019, to supply custom-fabricated steel ductwork and related materials for the Shell Convent Refinery. This retainment comes after months of negotiating terms for purchase orders which were based on items provided by the project engineer including GA and IFC drawings, estimated weights, and other needed specifications. However, when the project engineer provided PSP Industries with IFC drawing information, PSP Industries stated the IFC drawings were incomplete and not of significance to formulating its bid. In addition, PSP Industries’ production was affected during the project by the following events: revisions to the IFC drawings, untimely approvals, late delivery of free-issued material, changes to weatherization requirements, and impacts from COVID-19. PSP Industries stated that due to these events, there would be a cost increase to fabricate the steel where purchase orders needed adjustment. In March 2020, the project engineer requested PSP Industries submit a formal change order request document. The next day, PSP Industries submitted a formal change order request document in the amount of $1,300,000 for the Shell Convent Refinery.

Per original plans, the project engineer was to provide free material to PSP Industries, as PSP Industries planned refractory material installation to occur continuously and sequentially – a late delivery of the free-issued material would result in a price impact. The project engineer delivered the free-issued material in a piecemeal manner. PSP Industries noted this form of delivery problem as an ongoing delay to the start of fabrication. PSP Industries notified the project engineer of changes to the work and deviations to the delivery schedule throughout its performance period. PSP Industries sued the project engineer in AAA arbitration for breach of contract associated with the revisions to the IFC drawings and changes to the weatherized requirements. The project engineer countersued PSP Industries alleging entitlement to $480,000 in liquidated damages for breach of contract associated with delays to the delivery of some of the steel ductwork and related materials. The Shell Convent Refinery purchase orders set liquidated damages in the amount of 1% of the purchase order amount per week of delay, to be used as a substitute for actual damages. The purpose of liquidated damages is to make the non-breaching party whole for damages incurred because of the breaching party’s delays. Liquidated damages need to reflect a reasonable estimate of the actual damages, should not be excessive in comparison to the actual damages, and should not be used as a penalty.

The project engineer engaged an expert to form their opinion in a report that alleged PSP Industries was responsible for liquidated damages associated with delays to the delivery of some of the steel ductwork and related materials. However, the project engineer’s expert report lacked substantiation to the applicability of liquidated damages given that there was no evidence that the project engineer was entitled to delay-related damages as the parent company stopped the Shell Convent Refinery project, put the site up for sale in July as a result of dropping demand in oil and gas throughout the US due to COVID, and shut down the Refinery in October after failing to find a buyer. Cokinos | Young, who represented PSP Industries, engaged Peritia to review and assess claims arising from, and related to, the purchase order between the project engineer and PSP Industries.